Cover:The Plot to Kill the 401(k)

Illustration By Gérard Dubois

When the U.S. House of Representatives Committee on Education and Labor held hearings in October on the financial crisis' impact on workers' retirement security, some people got the message that 401(k)s' days could be numbered (See  House Committee Takes Retirement Investigation on the Road ).

Teresa Ghilarducci, a Professor of economic policy analysis at The New School for Social Research in New York, gave controversial testimony that some interpreted as calling for the dismantling of the 401(k) system and the substitution of a new mandatory, government-run retirement-savings system for Americans. The committee's chair, Rep. George Miller (D-California), was quoted as saying that "the 401(k) was never really designed for the retirement reliance that we have on it today. What would be better would be a comprehensive supplemental savings program for retirement, and that's not the 401(k) program." Media and blog reports with headlines like "Congressional Democrats Want To Take Away Your 401(k)" followed (See  IMHO: The Pit and the Pendulum ).

However, sources say that Miller subsequently expanded on his thinking in at least one interview after the uproar. "He made it very clear that he is not supporting anything that would take away 401(k) plans," says Brian Graff, Executive Director and CEO of the Arlington, Virginia-based American Society of Pension Professionals & Actuaries (ASPPA). "He was quite clear that his view is we need to reform the system." (Efforts to arrange an interview with Miller's office for this story were unsuccessful. However, in a response to a Wall Street Journal editorial on November 18, Miller said, "I do not support abolishing 401(k)s, forcing these plans into government programs, or changing their tax status. We must preserve and strengthen 401(k)s, not end them.")

Ghilarducci said in an interview that she also seeks 401(k) reform, not revolution (See  IMHO: Conspiracy Theories ). "It is an urban myth that I have proposed to take away the 401(k) system," she says. "I would never think that way. Once something is in place, even a professor living in an ivory tower cannot say that it should be dismantled, but I will say that the experiment has to be considered a failure, and rethought. I view my plan as provocative, which is appropriate for someone in academia."

Are they clarifying their stances, or repositioning them? Either way, the upshot seems the same: The idea that Congress should respond to the market turmoil by eliminating 401(k) plans is a nonstarter—and maybe that was not the goal. "I think it was a 'stalking horse,'" Washington attorney William Sweetnam says of Ghilarducci's testimony.

Sweetnam, a former U.S. Treasury Department Benefits Tax Counsel and current Partner at Groom Law Group, knows the ways of Washington. "Miller is concerned that the 401(k) system is becoming the de facto retirement system, and he is looking around to see what could be a more efficient retirement system, because he realizes that defined benefit plans are not coming back," he says. "There are a number of policy issues that Teresa Ghilarducci raises and addresses in her proposal. Maybe what Miller is doing is to get them to look at the policy issues that Ghilarducci raises, and to talk about the best way to address those issues."

So, look for Congress to take up 401(k) plans again in 2009, and to think about the issues raised in the October hearings—particularly, how to get more Americans into retirement plans, and how to increase their balances. Interviews with the four academics whose testimony provided many of the meatiest ideas at those hearings, as well as several industry sources, offer a sense of what might be in play next year. "The question is, what is politically feasible, and how much can you push it?" says Christian Weller, who testified at the hearings and is a Senior Fellow at the Center for American Progress Action Fund as well as an Associate Professor in the Department of Public Policy and Public Affairs at the University of Massachusetts, Boston.